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DENBY v. SEABOARD WORLD AIRLINES

December 8, 1983

M. E. DENBY, individually and on behalf of certain other concerned Underwriters at Lloyds, Plaintiffs, against SEABOARD WORLD AIRLINES, INC. and FLYING TIGER LINES, INC. Defendants.


MEMORANDUM AND ORDER

WEINSTEIN, CH. J.:

Plaintiffs, a group of insurance underwriters, seek contract damages of $673,190.16, representing the market value of silver shipped in a container by their subrogor, Kodak Limited, aboard a Seaboard World Airlines, Inc. flight from English to John F. Kennedy International Airport. The silver was stolen from Seaboard's warehouse at Kennedy where it had been stored, along with other Kodak property in the container.

 Defendant Seaboard has moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The carrier contends that the underwriters are barred from recovery because Kodak failed to file a timely, written notice of claim as required by Article 26 of the Warsaw Convention. The provisions of the Convention govern the airline's liability for goods lost or damaged during international flight.

 The underwriters make two main arguments in opposition to Seaboard's motion. First, they contend that Article 26 can be applied only to claims for goods "damaged," in the sense that they were physically injured during shipment, and not to those for lost or stolen goods. Since the Convention contains no notice of claim provision governing lost goods, the underwriters maintain that their ability to recover for the stolen silver is not affected by the Convention's time-of-claim provisions, but is governed instead by the Air Freight Rules Tariff filed by Seaboard with the Civil Aeronautics Board. Second, they maintain that even if the stolen shipment was subject to the Convention's notice of claim provision, Seaboard is barred from asserting that provision because it took possession of the Kodak container without receiving an air waybill, in violation of Article 9 of the Convention.

 For reasons indicated in detail below, Seaboard's motion for summary judgment is granted and the underwriters' complaint dismissed.

 I. FACTS

 On July 10, 1980, Kodak Limited, an English company, arranged with Seaboard's Customer Service Department to ship a container of cargo to John F. Kennedy International Airport. The two companies had worked together on previous shipments. It is undisputed that Seaboard knew the shipment consisted of a single container, containing forty units, weighing a total of some 11,000 pounds. It is less clear whether Seaboard was aware that in the container were thirty-six kegs of silver residue and flake.

 On July 11, a driver employed by Seaboard delivered one of Seaboard's standard ten-foot fiberglass containers to Kodak's plant outside of London. A Kodak employee loaded forty items into the container, closed the doors, and affixed a seal. The driver signed a receipt for the goods and delivered the container to Seaboard's warehouse at Heathrow airport without incident.

 On July 14, 1980, a Kodak employee delivered an air waybill to Seaboard's Heathrow office. An office waybill is a contract of carriage: it identifies the nature and weight of the cargo to be shipped; the number and any special characteristics of the packages in the shipment; the consignor and consignee; and the place of departure and destination. At the shipper's discretion, it may also include a special declaration of the cargo's value.

 Kodak's air waybill described a shipment of one container, "said to contain 40 packages" of scrap paper and silver residue. It included no declaration of value and did not indicate that the container was sealed.

 Why Kodak delivered the waybill three days after Seaboard took delivery is unexplained. The delayed delivery procedure was initiated by Kodak and was at variance with the procedure customarily used by the parties. In previous transactions, Seaboard prepared the waybill and delivered the bill and cargo container to Kodak at the same time. A Kodak employee would then sign the bill, retain a fully executed copy indicating Seaboard's acceptance of the cargo and return a fully executed copy to the trucker for Seaboard's records. In the case before us, however, Seaboard did not execute the bill until three days after it accepted Kodak's cargo. Technically, then, Seaboard accepted Kodak's cargo before making an effective contract of carriage.

 On July 16, the Kodak container was loaded aboard Seaboard flight number 305, which took off on the same day. Seaboard stamped the waybill to certify that the container had been shipped and mailed a copy to Kodak.

 The container arrived at Kennedy at 12:25 A.M. on July 17. It was stored by Seaboard employees in the cargo warehouse until the following day when Edward Kochersberger, a driver for Rochester Air Freight, arrived at the airport to claim its contents. Kochersberger, who was to transport the cargo to the Eastman Kodak Company in Rochester, New York, had been instructed to pick up forty items. The container, its seal broken and doors ajar, contained only four.

 Kochersberger sought out Seaboard's cargo supervisor, Joseph Martinez, to report the missing cargo. Martinez acknowledged that thirty-six items were missing, but declined to make a notation to that effect on the Pickp-Up Order and Tally Form, a document of transportation comparable to the waybill. Although Kochersberger signed the Tally Form, acknowledging "receipt of the ship in good order and condition, he noted "4" on the Rochester Air Freight Delivery Receipt. A customs official made a similar notation on the Customs Declaration.

 Neither Martinez, nor any of the three Seaboard rampmen who brought the container from the warehouse, filed a missing cargo report with Seaboard. Martinez and a Rochester Air Freight driver were subsequently tried in this Court and convicted for theft of the silver.

 On August 15, Kodak called Seaboard to inform the airline that the silver had not arrived in Rochester. Scotland Yard and Seaboard began investigations. Seaboard confirmed that the Kodak cargo had been picked up by Rochester Air Freight on July 18 and asked Kodak to verify that the silver kegs were sent on the July 14 air waybill rather than in a later shipment.

 The Eastman Kodak Company gave written notice of claim to Seaboard's New York office on August 26 and by letter of August 29, Kodak Limited notified Seaboard's London office concerning the silver's market value. Pursuant to a slip policy issued in 1979, the underwriters reimbursed Kodak Limited for the full market value of the silver and became subrogated to Kodak's rights against Seaboard. The underwriters filed a notice of claim with Seaboard on October 2, 1980, and commenced this action against Seaboard and its successor, Flying Tiger Lines, Inc. in March, 1983.

 II. LAW

 A. Introduction

 The Warsaw Convention for the Unification of Certain Rules Relating to International Transportation by Air, 49 Stat. 3000-3026, TS No. 876, 137 L.N.T.S. 11, reprinted at 49 U.S.C. § 1502, was adopted in 1929. The United States became an adhering nation in 1934. 78 Cong. Rec. 11582; 49 Stat. 3013. The Convention requires a shipper to notify a carrier within seven days when goods are damaged. Treaty Article 26(3). It imposes no notice requirement on a shipper whose goods are lost or partially lost.

 In the context of modern air technology, shortages in the contents of a cargo container must be characterized as "damage" within the meaning of Article 26 of the Convention, rather than loss. Accordingly, a shipper who experiences shortages from a container, such as the shortage experienced by Kodak, must file a notice of claim with the carrier within seven days of receiving the container.

 The Warsaw Convention was drafted in the airline industry's infancy. Containerization, which entails loading separately packaged goods and loose objects into one large reusable metal or fiberglass package, represents a technique probably unknown to the Convention's drafters. Neither the signatories, nor later adherents like the United States, could anticipate the volume of cargo now handled by the industry, the technology which would develop to handle it efficiently, or the emergency of a lucrative, illicit industry in stolen cargo. The realities of the modern industry dictate development of a policy which gives the airlines the earliest possible notice of pilferage from an intact cargo container. The Convention's seven-day notice provision is designed to afford the airlines, as the parties in the best position to prevent cargo theft, an opportunity to undertake the kind of prompt investigation that increases the likelihood of locating stolen goods, identifying the responsible individuals, and averting future incidents. Without prompt notice, law enforcement officials (such as the F.B.I. or city police) located at an installation like Kennedy Airport are helpless to apprehend the gangs that prey on international trade. Protection of the public, as well as the airlines and shippers, is at stake.

 It is undisputed that the Convention applies to the facts of the case. The Seaboard flight meets the Article 1(2) definition of international transportation in that both the place of departure and that of destination are located within the territories of adhering parties. Although the parties disagree concern ing some minor factual issues, there is no dispute as to the material facts making summary judgment an appropriate disposition.

 The central issue is whether under the terms of the Convention the underwriters can recover all, or at least part of the $673,000 paid to Kodak for the stolen silver, or whether as Seaboard contends, they are barred from any recovery for failing to give Seaboard timely written notice of their claim. Resolution of this issue turns on whether a shortage from a containerized shipment constitutes "loss" or "damage" as the terms are used in the Convention.

 B. Article 26: Notice Of Claim

 Seaboard's motion for summary judgment is based on Kodak's failure to provide written notice of claim until August 26, 1980, more than five weeks after receipt of the container and well after the filing deadlines set out in Article 26 of the Convention.

 Article 26 specifies the notice of claim requirements for baggage or goods damaged or delayed in international flight. It provides the following timetable:

 (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within ...


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